UPDATE 7-Oil at fresh 2-1/2 year high on unrest

                                
 * Brent extends gains on Mideast, N. Africa unrest
                                
 * Attention also focused on elections in Nigeria
                                
 * Chinese interest rates up 0.25 pct, fourth rise since Oct
                                
 * Coming Up: U.S. API petroleum stocks at 2030 GMT
                                
 
                                
 (Recasts, updates prices, adds quote)
                                
 By Jessica Donati
                                
 LONDON, April 5 (Reuters) - Oil prices rose to fresh 2-1/2
year highs on Tuesday, with Brent crude topping $122 a barrel as
unrest in oil exporting countries in the Middle East and Africa
outweighed China's fourth interest rate hike since October.
                                
 The prospect of a stalemate prolonging the loss of 1.3
million bpd of exports from Libya loomed amid unsuccessful
efforts to end the war and clashes over the oil town of Brega
intensified. [ID:nLDE7340W0]
                                
 Brent crude for May <LCOc1> was 84 cents up at $121.90
barrel at 1452 GMT after closing at $121.06 a barrel on Monday,
the highest settlement since Aug. 1, 2008.
                                
 U.S. crude <CLc1> fell 42 cents to $108.05 a barrel after
settling at $107.78 on Monday, the highest since Sept. 22, 2008.
                                
 "The path of least resistance remains higher on account of
both Middle-Eastern headlines, as well as the watch-and-wait
status coming from Nigeria," said Edward Meir at MF Global in a
note.
                                
 "The whole commodity complex seems to be on the boil again,
with precious metals, many of the base metals, and some of the
agriculturals, (like corn), all hitting record or recent highs."
  <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
  FACTBOX on Libya's oil production:          [ID:nLDE72U0ZR]
  More on Middle East unrest:                  [ID:nTOPMEAST]
  Libya Graphics               http://link.reuters.com/neg68r
 Interactive graphic          http://link.reuters.com/puk87r
 <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 The fourth Chinese interest rate increase since October
briefly triggered a decline of around $1 a barrel in oil prices
earlier in the session, but oil pared losses as bloodshed
continued in Yemen and anger brewed in Nigeria over delayed
elections. [ID:nLDE73412I] [ID:nL3E7F51LX]
                                
 "The market doesn't seem that bothered about Chinese
interests rates any more, which seems totally crazy to me," said
David Morrison, a strategist at GFT.
                                
 
                                
 TIGHT SUPPLY?
                                
 Worries about oil supply turned to Nigeria after elections
there were postponed by a week due to logistical problems,
sparking fury among voters who were promised a break with a
history of flawed and violent polls. [ID:nLDE7330ZK]
                                
 Nigerian militants have previously hit supplies of the
country's oil, a sweet crude that has jumped to a premium as a
result of the Libyan outages.
                                
 "We have already lost good grades in Libya, and now the
elections in Nigeria are providing further potential upside,"
said Rob Montefusco, an oil trader at Sucden Financial.
                                
 However, production was restarting in Gabon, which produces
a similar grade of oil, after energy worker strikes completely
cut off the country's near 240,000 bpd of output.
                                
 Total <TOTF.PA> and Royal Dutch Shell <RDSa.L>, key
producers in Gabon, both said they were working to restore
normal production as soon as possible. [ID:LDE7340MT]
                                
 Saudi Arabia has raised supply and introduced lighter grades
of oil to help fill in for missing Libyan output, but traders
question how much more room for output increases remains.
                                
 "Spare capacity is eroding and together with the
geopolitical backdrop where Nigerian outages are very much on
the cards with the upcoming elections, upward pressure on prices
could well continue," said Amrita Sen, an analyst at Barclays
Capital.
                                
 Former Saudi oil minister Sheikh Zaki Yamani told Reuters
oil prices could leap to $200 to $300 a barrel if the kingom is
hit by serious political unrest. [ID:nLDE7340MU]
                                
 The discount of U.S. crude futures to Brent <CL-LCO1=R>
widened to over $14 a barrel on Tuesday, expanding by over $3 a
barrel since the start of trade this week, but remained distant
from a record $17.12 a barrel spread at the start of March.
                                
 Weekly industry and government petroleum inventory reports
are forecast to show a 1.4 million build in U.S. crude
inventories, a 1.9 million barrel decline in gasoline stockpiles
and a 200,000 barrel drop in distillates, according to a Reuters
poll of analysts. [EIA/S]
 (Additional reporting by Seng Li Peng and Simon Webb in
Singapore; editing by James Jukwey)